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Choosing a Financial Advisor – Where to Start, What to Ask

Everyone reaches a point in their life when they ask who can they turn to for financial advice. When you’re a kid, it’s probably your Mom or Dad telling how much birthday money you can spend and how much you need to save. When you’re a teenager it’s still your Mom and Dad but you just ignore their advice and do what you want - which is spend it.

However, sooner or later, when you have some work experience under your belt, you gain an understanding of just how hard it is to save for today’s needs let alone for retirement. At that point, Mom and Dad may not be around or you recognize they are not the all-knowing experts you thought they were when you were a kid. So, where do you start and what do you ask?

Starting Point

Ask yourself if any of the scenarios below fit your situation. If so, you should seek a financial advisor.

Dealing with a big life event: If you’re getting married, starting a business, want to quit your job to travel the world for a year, or experiencing another life change.

Looking for someone to hold you accountable: Sometimes it’s hard to stick to money decisions. No matter how good the financial plan, it won’t work if it isn’t implemented and there’s no accountability.

Making decisions in the dark: Do you know your net worth or how to figure it out? Do you know your retirement account asset allocation?

Not feeling financially secure: If your life and career are going great but your finances aren’t.

Ask Colleagues and Friends

Word of mouth is still the greatest marketing tool any company has – especially ones that provide the type of personal services financial advisors do. Therefore, ask colleagues and friends whose opinion you value if they have a financial advisor they like working with. People who you value, and that value you, will not want to steer you to someone they are unsure of. Think about it, if you use a plumber that you didn’t like the work they did on a recent project, would you recommend them to a colleague or friend you valued? Mixing family and money? That’s up to you, but sometimes it’s worse than politics.

Internet Search

If you Google “financial advisor” or “financial advice”, you will be introduced to a world as large and intimidating as any that exists on the internet. Brokerages, banks, insurance companies and advisors compete for visibility in the most expensive segment of internet advertising – financial services. Let’s help narrow down the choices.

Advisor, Broker or Robot?

Armed with a list from colleagues, friends or Google, you need to narrow down the list to a handful you can actually contact. Financial advisors earn a living by helping people decide how to manage their money and reach financial goals. But financial planning isn’t a one-size-fits-all activity. There are several types of financial advisors and the term “financial advisor” applies to people with a variety of specialties, certifications and titles, but all of them help you manage your money.

For example, a Certified Financial Planner (CFP®) focuses on helping you reach your financial goals, while a broker focuses on helping you buy and sell securities. These days, “advisor” also refers to companies that use very sophisticated computer algorithms in a more hands-off approach to money management. The best robo-advisors help you choose and rebalance your investments, manage the tax effects of investing, and offer online tools to help you plan for the future at a fraction of the cost of a regular advisor. Hybrid advisors sometimes offer the best of both worlds: combining the hands-off automation with the option to access a human advisor when needed.

You want to narrow your search by choosing the right category of financial advisor for your situation. If you don’t, you risk spending more money than necessary on a service that may not suit your needs. If you want help setting up a plan to meet your financial goals, a certified financial planner would be the best choice, not a stockbroker. Maybe you’re looking to get going on retirement saving. A robo-advisor can help you with that at a lower cost than most human advisors.

Which Advisor is Right for You?

A key factor in figuring out which type of advisor is best for you is how much money you have to invest, including your retirement accounts. Some financial advisors won’t work with people who have less than $250,000 (or more) in investable assets. Also, if you don’t have much to invest, it doesn’t make sense to pay a big fee for money management services.

If you have less than $25,000 to invest, you may be best served by a robo-advisor that has no minimum account requirements, because these companies offer low-cost money management, plus tools for setting financial goals for the future.

If you have $25,000 to $250,000 to invest/already invested, you might consider either a human advisor or a robo-advisor that offers access to human advisors, depending on the complexity of your financial situation.

If you have $250,000 or more in investable assets, you’ve got choices. Many advisors will consider you a valuable client. That doesn’t mean you need a human to manage your money. The decision comes down to whether the type of one-on-one guidance a human advisor can offer is worth the cost to you.

Consider how complex your financial situation is. If you simply want to get started on investing for the long term, that might mean a more “set it and forget it” approach from a robo-advisor. If you have estate-planning or other more complex needs, then a human advisor is your best bet.

What to Ask or Look For

If you’re going to investigate a robo-advisor, look for low minimums, low fees and useful tools. If you’ve got an employer sponsored retirement account, make sure the robo-advisor works with these accounts. Here is a list of robo-advisors and some additional information.

If you are leaning toward the hybrid model, look for low fees and make sure the advisors are available in a way that meets your needs. For example, some robos offer unlimited access via text, while others offer a limited number of phone calls.

If a human advisor is your best bet, your next step is to interview a few. While some advisors only accept new clients who have more than $250,000 to invest, others will work with clients who have less, often by charging an hourly or flat fee. Once you’ve found a handful of prospective advisors, set up interviews to make sure this person is the right one to help you meet your financial goals. If you are unsure what you should ask a financial advisor, check out this list of 10 questions to ask a financial advisor.

A CFP® Professional

Be aware, not all financial advisors are certified. A CFP® professional is distinguished through education, testing and commitment to the industry and clients. They are educated in the financial planning process through a curriculum approved by the CFP Board and must voluntarily ascribe to CFP Board’s code of ethics.

A CFP® professional should always serve as a fiduciary looking out for your best interest. The relational aspect of working with a CFP® professional is key for success. There should be no cost or risk associated with interviewing a CFP® professional, so consider scheduling a meeting to increase your financial awareness and confidence.